Hawaii Becomes First State to Fund Climate Change Mitigation with Tourism Tax

In a landmark move, Hawaii has passed Senate Bill 1396, raising the state’s hotel and vacation rental tax from 9.25% to 11%, starting January 1, 2026. The additional revenue will be used exclusively to fund climate change mitigation efforts, making Hawaii the first U.S. state to directly earmark lodging tax revenue for environmental protection.

With tourism making up a major share of Hawaii’s economy, the state is turning to visitors to help shoulder the financial burden of preserving its vulnerable coastlines and ecosystems.

What the New Tax Covers

The new 11% tax applies to:

• Hotels and vacation rentals across all islands

• Cruise ship accommodations within Hawaii

• Existing stays booked after the law’s effective date

The tax increase is projected to generate $85–$100 million annually, with funds allocated to:

• Combating coastal erosion

• Addressing wildfire and flooding risks

• Supporting climate resilience infrastructure

This replaces a previously proposed $50 flat entry fee for tourists, which had raised constitutional and logistical concerns.

Why This Tax Matters

Hawaii’s environment is under growing pressure from both tourism and climate change:

• Sea level rise and coastal erosion threaten high-value real estate and native ecosystems

• Wildfires on Maui and other islands have become more frequent and destructive

• Flooding has damaged infrastructure in key tourism areas

  
  

Instead of general budget allocations, this bill creates a stable, designated funding stream to address these challenges — paid for primarily by non-residents.

How Businesses Should Prepare

Hotel operators, property managers, and CPA firms with tourism clients should prepare for:

• Pricing adjustments to account for the higher tax rate beginning in 2026

• Advanced client notice for future bookings made in 2025 for stays in 2026

• Strategic planning for any cash flow implications tied to increased tax remittance

• Transparency in receipts and disclosures for short-term rental platforms

  
  

Tour operators and cruise lines will also need to update pricing structures and tax documentation.

Final Thought

This policy marks a new era in how states may fund climate adaptation. Rather than burdening residents, Hawaii is leveraging its status as a global tourist destination to fund long-term environmental protections.

At Bizora AI, we’ll continue tracking how states use tax policy to balance economic development and climate resilience — and how those changes affect your business and your clients.